Ozy Media founder Carlos Watson arrested for fraud

Carlos Watson, the founder of struggling digital startup Ozy Media, was arrested Thursday on federal fraud charges in what prosecutors say was a scheme to prop up the financially troubled company.

Federal agents arrested Watson at a Manhattan hotel after two of the company’s top executives pleaded guilty this month to fraud charges, including Samir Rao, then Ozy’s chief operating officer, who allegedly posed as a YouTube executive during a presentation to Goldman Sachs, a potential investor. .

Ozy, which was founded in 2013, had vaunted “to be one step ahead” and “never [telling] a story that another national or international publication has already covered.” But the company hemorrhaged millions of dollars before closing amid revelations of possibly misleading business practices.

The indictment unsealed Thursday in U.S. District Court in Brooklyn charges Watson with conspiracy to commit securities fraud and wire fraud, as well as impersonation for his role in impersonating identities of several media executives.

Ozy billed itself as a progressive digital platform, but it imploded under insurmountable debt, forcing it to rely on high-interest loans and woo investors more aggressively. It had also come under scrutiny for its audience size, with Watson claiming in 2021 that it had 25 million subscribers to its newsletters – more than The New York Times.

In a parallel civil case, the Securities and Exchange Commission also accused Watson and the company with fraudulent investors of approximately $50 million “through repeated misrepresentations regarding the company’s basic financial condition, business relationships and fundraising efforts.”

For example, Watson and others “regularly and deliberately presented potential investors with false financial information that grossly inflated Ozy Media’s annual revenue by at least 100%,” the SEC said.

Guilty pleas

The SEC said Rao and Ozy’s former chief of staff, Suzee Han, “agreed to resolve the charges against them,” as they did separately with U.S. prosecutors.

Rao pleaded guilty in federal court this week, while Han did so last week. The guilty pleas and arrest were first reported by The Wall Street Journal.

“I am deeply disappointed by the events of today,” Watson’s attorney Lanny Breuer said after the arrest. “We were engaged, I thought, in a good faith and constructive dialogue with the government. And given the government’s claims to promote such dialogue generally, I simply do not understand the dramatic decision to arrest Carlos this morning. .”

Pretend to be a bank executive

The company’s scrutiny deepened after the New York Times reported in October 2021 that an Ozy official posed as a YouTube executive in a failed attempt to get Goldman Sachs to inject money in the troubled business.

Shortly after, Ozy said so was closing.

“As alleged, Carlos Watson is a con artist whose business strategy was based on outright deception and fraud,” said Breon Peace, the Brooklyn-based U.S. Attorney for the Eastern District of New York. “He ran Ozy like a criminal organization rather than a reputable media company.”

Michael J. Driscoll, deputy director in charge of the FBI’s New York field office, said Watson “repeatedly attempted to entice investors and lenders through a series of deliberate deceptions and fabrications.”

Maximum penalty

Authorities say Watson and his business partners, between 2018 and 2021, attempted to defraud investors and lenders of “tens of millions of dollars through fraudulent misrepresentations and omissions” about the company’s debts and other key financial information.

On several occasions, the U.S. attorney’s office said, Watson and his colleagues pretended to be other media executives to cover up prior false statements.

If convicted, Watson faces at least two years in prison, with a maximum of 37 years, the US attorney’s office said.

The SEC’s civil complaint, also filed in U.S. District Court in Brooklyn, accuses Watson and the company of violating anti-fraud provisions of federal securities laws.

“We allege that over several years, the defendants collected approximately $50 million from victimized investors based on fraudulent documents and repeated misrepresentations, including, in at least one instance, by impersonating for a potential business partner in a meeting with an investment bank,” said SEC Chief Enforcement Officer Gurbir Grewal.

The agency, whose regulatory responsibilities include investor protection, accused Ozy officials of “routinely and deliberately” presenting to potential investors questionable financial information, including falsely claiming that the company’s earnings were at least double what they actually were.

In addition, the SEC said, Watson and Rao also sought investments by allegedly telling potential investors that they were getting money from top companies and investors.

In one case, according to the SEC and federal prosecutors, Watson and Rao staged a ruse that resulted in Rao impersonating a YouTube executive to convince a potential investor that Ozy was receiving licensing revenue from the streaming giant. online videos.

When the would-be investor found out about the alleged scheme, Watson claimed Rao was suffering from a “mental health crisis,” the SEC said.

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